The Blessing of Natural Resources: Evidence from a Peruvian Gold Mine

This paper studies the impact of Yanacocha, a large gold mine in Peru, on the local population. Using annual household data from 1997 to 2006, we nd robust evidence of a positive effect of the mine's demand of local inputs on real income. The effect, an average income increase of 1.7% per 10% additional mine's purchases, is only present in the mine's supply market and surrounding areas. We also nd evidence of improvements on measures of welfare and reduction of poverty. We examine and rule out that our results are driven by increased public expenditure associated to the mining revenue windfall. Using a spatial general equilibrium model, we interpret these results as evidence of net welfare gains generated by the mine's backward linkages and its multiplier effect.